When President Obama's healthcare reform bill passed in late
March 2010, name- brand pharmaceutical companies -
- immediately scrambled. The timing could not have been worse.
Most branded pharmaceutical companies were already nervous about
the lack of branded drugs in the pipeline.
The Amgens of the world also knew that several best-selling,
brand-name drugs were losing their patent protection in 2011 and
2012. They knew several of the industry's cash cows - including
Lipitor, Plavix and Seroquel - were coming off patents over the
next several years … referred to in the industry as the "patent
Generic drugs already make up 70% of prescription sales in the
U.S., but that percentage will undoubtedly increase when
healthcare reform begins to roll out. The government will place
significant cost pressures on pharmaceutical companies to keep
prices low. Lower-priced generics mean lower costs to government
programs, private insurance companies and most importantly, the
There is no doubt that generic drugmakers will thrive in the
upcoming cost-driven environment.
But there is one area of generics that will thrive more than
any other. In fact, this market is expected to grow by more than
8,000% by 2020.
CLICK HERE to find out about this little-known sector of
the drug industry …
Biosimilars are the generic equivalent of brand-name
biologics. Biologics are brand-name products created by biologic
processes, rather than being chemically synthesized. Biologics
are used heavily in the treatment for various cancers, rheumatoid
arthritis and adverse cardiovascular conditions.
According to research group Datamonitor, the global market for
biosimilars should grow from $243 million in 2011 to an
astounding $3.7 billion in 2015 - a growth rate of 1,422% in just
four years. And the growth doesn't stop in 2015. Sandoz, the
current leader in biosimilars, expects the entire biosimilars
market could reach $20 billion to $30 billion by 2020.
That means the market could grow by more than 8,000% in 10 years.
Now you understand why this is an industry to pay attention
One of the catalysts of such staggering growth in the
biosimilar arena will be the inevitable "patent
cliff" that some of the largest name brand biologics will
fall over in the next few years. With biologic patents running
out, biosimilars are likely to sweep in and grab market
What's more, there is a dearth of replacement biosimilars in the
development pipeline over the next few years. And with generic
biosimilars eating away an average of 75% of profits from brand
name biologic counterparts, you can quickly see the adverse
effect the "patent cliff" will have on the brand name biologic
But the "patent cliff" isn't the only concern among the
brand-name pharma companies that manufacture biologics.
Brand-name biologics are some of the most expensive drugs in the
world. The cost of some treatments can easily reach $100,000 or
more annually. Finding ways to keep costs low will be a
priority, and will likely be a boon to companies that make
lower-cost, generic biosimilars.
With upcoming healthcare reform on the way, sales of biosimilars
will be supported by all developed nations in an effort to keep
costs low for insurance companies (remember those co-pays) and
The boon in biosimilars will happen first in the U.S., and come
at the expense of Europe. In fact, the U.S. should account for
more than 80% of the world market by 2014, according to
Datamonitor. So the U.S. is where we want to focus our investment
So how can we profit from this inevitable upcoming boom in the
biotech industry, and more specifically in biosimilars?
While I am not yet aware of any pure plays on biosimilars, my
research indicates that companies that will thrive in the new
industry will be ones with lots of resources to bring biosimilars
Here are a few of the companies I like in the biosimilar
Dr. Reddy's Laboratories (
- This India-based, mid-cap company has proven to be a
quality generic drug manufacturer. More importantly, it can
manufacture generic products at a 25% discount to American
companies. This capability will help it gain market share in the
upcoming cost-driven, health care industry.
Spectrum Pharma (Nasdaq: SPPI)
- Spectrum recently jumped into the untapped and growing
market of biosimilars. In fact, the stock price has tripled since
the company announced plans to be among the first biotechs to
develop a biosimilar version of Rituxan. Rituxan is the
second-biggest selling product for brand-name pharma
manufacturer Roche Holdings AG, with $6 billion in sales.
This could indeed be a huge opportunity for investors over the
next few years, and one that we will continue to monitor
Editor and Chief Options Strategist
The Strike Price